Last of the Big Spenders

How 2008 panned out for one of the M&A boom's most transformative deals — and what 2009 has in store.

What do a bank, a health-care products retailer and a chemicals conglomerate have in common? Each is responsible for orchestrating some of the biggest and most transformative deals during the recent M&A boom, and has subsequently spent the past year handling the aftermath. But that’s where the similarities end. Of the three, one has hit a wall: Royal Bank of Scotland’s ambitious consortium break-up of Dutch rival ABN Amro has proven to be an overpriced dud. In contrast, the second dealmaker is bouncing along, with Alliance Boots announcing a 20% rise in profits after becoming the first FTSE-100 company bought by private equity. But it’s the third, AkzoNobel, that warrants attention now — the jury is still out on its bid to shed its conglomerate status, hinging on a major divestment and acquisition strategy. The Dutch industrial group’s performance during 2009 could decide whether the move works or came too late.

Much of the pressure falls on Keith Nichols. CFO since May 2008, he earned his stripes at AkzoNobel over the previous two-and-a-half years as senior vice-president for finance, following a 20-year finance career that included time at Anglo-Dutch steelmaker Corus and TNT. The 48-year-old Briton knows that he’s “not immune to difficult environments or change.” But demonstrating the value of the new AkzoNobel could prove a baptism of fire in his current role.

Indeed, there are three tests ahead for AkzoNobel, all of which call into question the timing of its transformation. First, it needs to integrate ICI, a once-iconic UK company that had lost its way over recent years and which AkzoNobel bought for £8 billion (then €11.5 billion) in 2007. With 29,000 employees across 50 countries, compared with AkzoNobel’s 43,000 across 80 countries, ICI was smaller but nonetheless a sprawling business to integrate. Second, it must drive through a critical divestment plan during one of the most severe economic downturns in recent history. Finally, there will be pressure to demonstrate that its greater reliance on emerging markets — a crucial part of its rationale for buying ICI — is still sensible despite those economies beginning to show signs of slowing down. If AkzoNobel succeeds on these three fronts, it could be a textbook example of how to change the course of a company, regardless of the rocky conditions. If it doesn’t, it could join the likes of ICI as proof of how ill-advised deals can scupper the most well-meaning restructuring strategies.

The Get-Together

Timing aside, few would argue that AkzoNobel’s restructuring was unnecessary. The company had operated in pharmaceuticals, chemicals and coatings since the merger of Dutch company Akzo and Swedish firm Nobel Industrier in 1994. But when Hans Wijers took over as CEO in 2003, economic and operational woes had driven the company’s share price down to 1996 levels. Analysts presumed that Wijers, a former management consultant, would spin off the pharmaceuticals or chemicals division and refocus the group on the remaining businesses. Many of its peers had already done so. German chemicals rival BASF, for example, sold its pharmaceuticals businesses to Abbott Laboratories in 2001. ICI had spun off its drugs business as Zeneca back in 1993.

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